When the IMF’s Chief Economist starts citing pseudonymous bloggers…

…you know we are in trouble.

OK OK former Chief Economist.  Er, former Chief Economist’s co-blogger.

The “Good Bank” Proposal

I am nearly speechless, but I will say this:  It is nice to see Real People seriously pondering whether saving the financial system necessarily requires saving the current pile of financial institutions.  And I wish the Treasury would bring in someone like Prof. Johnson or Prof. Buiter to give advice.

8 comments to When the IMF’s Chief Economist starts citing pseudonymous bloggers…

  • doug

    Ok, you are a star. Now, can you explain how Timmay inspired enough confidence in himself with his boss to get a second job, that of car czarette, or whatever they call it…..I mean, doesn’t he have too much to do already?
    The Big O is loosing me here….

  • DanielNicolas

    I wouldn’t be too certain that citing you is a sign of trouble – Tanta and CR were largely anonymous yet are still widely respected by many of the ‘top names’. I think blogging and commenting anonymously allows awesome people to rise to the top of the game by leveling the playing field. Especially in a field where economics is largely applied theory, the fact that anyone can be in contact with and spread new ideas to the top names and powerful voices in the community is amazing. Where as before, your words were only taken seriously based on your reputation and/or degree, now it’s the actual words that matter.

  • fratris filia nullius

    Now I wonder how long your pride will suffer you to remain anonymous? :-)

    That’s truly awesome though!!!

  • Unpalatable

    You da man!

  • Unpalatable

    You da woman?

    Some day the mask will be revealed.

  • Yakushima

    I had a vaguely similar experience recently. At Edge of the American West, I quoted Milton Friedman about the Great Depression, including his pro-New Deal line that “the short run deserved to dominate.” One of the co-bloggers there, Eric Rauchway, who is in great demand recently for his commentary on the New Deal, used the quote in a front-page op-ed for the otherwise undistinguished Sacramento Bee, and pointed to the online version from Edge of the American West. Mark Thoma of Economistsview.com picked that up, with the blog title “The Short Run Deserved to Dominate.” And Brad DeLong picked it up from Mark Thoma. So now this priceless bit of pro-spending stimulus rhetoric (considering the source) is on the radar of the big-time econ bloggers. And all because I twitted that Milton Friedman, whatever his faults and ideological blinkers, was a brilliant economist who certainly must have thought seriously about fiscal stimulus, and was probably not so stupid as to imagine that the New Deal was worse than useless. Starting from that assumption, finding a relevant quote turned out to be child’s play, two minutes with Google.

    There are a lot of smart people out there, so that’s not the magic ingredient. I think what it takes is some common sense plus a tiny bit of contrarianism — a willingness to invert typical assumptions or convenient precedents and then work back to what makes sense if necessary — plus some persistence. Eventually you can help bring down a little daylight here and there. The Good Bank is an example of this. It might also be an idea whose time has come: the Web might make it possible to set up a commercial banking practice almost overnight; establishing Good Bank retail outlets later would be mainly a matter of scooping up the buildings, operations and employees of failing banks, and rebranding everything (also potentially an overnight operation.) Even before acquiring retail bricks and mortar, think of all the ATMs available in convenience stores, all the retail outlets that offer cashbacks almost routinely. The startup Shinsei Bank here in Japan went this route, years ago, at the auspicious moment when every bank in Japan had mud on its face from bailouts and takeovers. Banking seems so substantial, with its massive polished hinges on its bank vault doors, those tall edifices it owns. But it’s really an information-economy business, isn’t it? Good Banks could start mushrooming up very soon — the main ingredient would be smart, ethical, energetic, job-hungry people to use as employees, and I think there will be a lot of them on the streets.

  • Unpalatable

    I understsnd the Good Bank proposal as this:

    “Use taxpayer money to capitalize one or more GOOD banks, which then buy only GOOD assets from the current crop of bad banks at distressed prices. Then let the bad banks fail, so the cost of failure falls precisely where it belongs: on the shareholders, bondholders, executives, and counterparties of the failed institutions.”

    My questions:

    1.

  • Unpalatable

    understand the Good Bank proposal as this:

    “Use taxpayer money to capitalize one or more GOOD banks, which then buy only GOOD assets from the current crop of bad banks at distressed prices. Then let the bad banks fail, so the cost of failure falls precisely where it belongs: on the shareholders, bondholders, executives, and counterparties of the failed institutions.”

    My questions:

    1. Why use taxpayer money to capitalize the Good Bank – why won’t the free markets supply this money if the deals to be had are so good (given the presumed distessed prices)? If the counter-arguments are that there is no investment money out there or that the people with the money are not willing to invest, my sense is that there always is investment money out there looking for a good deal (e.g. Warren Buffet and others have been looking for deals and buying things), and that if people are not willing to invest it is because the price is not yet right or the assets cannot be priced.

    2. If we use use taxpayer money to capitalize the Good Bank, then does that mean the governnent gets to run it, with all its attendant ineffiencies and political gamesmanship and influence peddling?

    3. Maybe no one is buying the Bad Banks’ “good assets” because they cannot be easily or cheaply severed from the “bad assets”, or even identified — such evaluation would require a property by property and debtor by debtor analysis (if the loan itself was to be purchased), and I question how easy it would be to segregate and value a mortgage security if it is bundled up with a bunch of rotten securities. Look at what a lousy job the experts did valuing these mortgages in the past months as part of the Merrill Lynch, Fannie/Freddie and AIG mergers/bailouts.

    4. If the Good Bank is to be created by “scooping up” all the operations and people of the Bad Banks via an FDIC-takeover, how is this different from (temporary) nationalization/preprivitazation?

    5. Is Geitner’s plan, as ill-formed as it may be, so different from a Good Bank – creating a public-provate partnership to price and then buy both good and bad (toxic) assets?

    I guess what I am saying is, to understand (and maybe appreciate) the Good Bank proposal, I’d like to hear more details on it and how it deals with the issues describe above.

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